The Evolution of Health Insurer Costs in Massachusetts, 2010-12

Citation:

Ho, Kate, Ariel Pakes, and Mark Shepard. 2018. “The Evolution of Health Insurer Costs in Massachusetts, 2010-12”. Review of Industrial Organization 53 (1) : 117-137.
Paper222 KB

Date Published:

2017

Abstract:

We analyze the evolution of health insurer costs in Massachusetts between 2010-2012, paying particular attention to changes in the composition of enrollees. This was a period in which Health Maintenance Organizations (HMOs) increasingly used physician cost control incentives but Preferred Provider Organizations (PPOs) did not. We show that cost growth and its components cannot be understood without accounting for (i) consumers’ switching between plans, and (ii) differences in cost characteristics between new entrants and those leaving the market. New entrants are markedly less costly than those leaving (and their costs fall after their entering year), so cost growth of continuous enrollees in a plan is significantly higher than average per-member cost growth. Relatively high-cost HMO members switch to PPOs while low-cost PPO members switch to HMOs, so the impact of cost control incentives on HMO costs is likely different from their impact on market-wide insurer costs.

NBER Working Paper #22835

Last updated on 10/03/2018